It’s the Economy that’s Greasing the Skids

Investor’s first read Daily edge before the open

DJIA: 17,757
S&P 500: 2,077
Nasdaq  Comp.: 5,013
Russell 2000: 1,256

Thursday, Jul 2, 2015   9:02 a.m.

SUMMARY  

     Once the Greek dilemma is history, the direction of the market will once again be based on the rebound in the U.S. economy and timing of a Fed increase in interest rates the first in seven years.

SUMMARY

      Trading should be mixed, even light today as some traders stretch a 3-day holiday into four.  With stock prices off Tuesday’s correction lows some may wish to lighten up  in face of the uncertain outcome of the joust between Greece and the Euroroup.

      Then too, there may be sellers today who were not impressed with the two-day rebound and fact the broad-based S&P 500 broke down through its 50-day moving average, which is used by technicians as a benchmark (of sorts).

      Soooo, we are looking at a stock market that continues to fluctuate sideways in a 5-month trading range without the momentum to breakout in one direction or another.

      Right now the DJIA and S&P 500 are trading at the low end of this range where new negatives would break it out on the downside. If the negative was big enough, a nasty correction would follow.  Otherwise, a breakout would be short and bitter sweet with a big surge following.

      There are always several balls up in the air in this business, any one can come down to change the direction of stock prices. The Fed always has this clout. Energy prices can turn stocks up or down, the US dollar, as well. International conflicts haven’t had much influence.

      Perhaps the biggest swing factor is whether the U.S. economy can rebound.  Obviously failure to do so would prompt heavy selling.  While a robust rebound would increase the odds of  a Fed increase in its benchmark interest rate from essentially “zero” that shouldn’t be good reason for selling, but who knows how the Street’s computers are programmed ?  It would signal a change in Fed policy and suggest further increases in interest rates, raising fears of a negative impact on the economy’s growth. Even so, the economy should be able to grow (and stock market thrive) with interest rates  higher levels.

      A good night’s sleep tops all, suggesting a reasonable cash reserve cushioning a portfolio from a sudden decline, but also arming the investor with buying power in the event the market declines to attractive levels.

       Aggressive traders may want to selectively do some buying in here and especially if stocks drop prior to the long weekend.

UPSIDE:     The market needs to cross DJIA 17,802; S&P 500: 2,083 and Nasdaq Comp.: 5,039 to give the bulls a shot at a big day. Do that, and I can see DJIA: 17,849; S&P 500: 2,087; Nasdaq Comp.:5,043.

DOWNSIDE:     A drop below DJIA 17,648; S&P 500: 2,063; Nasdaq Comp.:4,980 would be disturbing without an immediate rebound.

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THE FED

      The guessing game continues – Will the Fed bump interest rates up in September, or later ?

      Obviously, their decision will key on the strength of the U.S. economy where housing is taking the lead and now consumer expectations are soaring.

      Today brought the ADP Employment Report with 237,000 new hires, to be followed by the PMI Mfg. (9:45), ISM Mfg. (10:00), Construction Spend (10:00). Thursday we get Jobless Claims and the Employment Situation reports (8:30), and Factory Orders 10:00).

      Manufacturing has lagged. Any pickup and “interest rate bump” hits headlines.

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My Technical Analysis of the 30 DJIA Companies:  

On occasion, I technically analyze each of the 30 DJIA stocks  for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the DJIA “divisor” (0.1498588) to get the DJIA for those levels.
     As of  June 26 a reasonable risk is 17,837; a more extreme risk is 17,650 The upside potential is has dropped with the market’s inability to follow through last week and is now 18,270.  

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KEY EXTERNAL FACTORS: 

-Stock market bubble – China
Q2 earnings for some companies will suffer from U.S. dollar’s strength and plunge in oil prices.
-Market still keyed on the Fed and it’s first bump up in interest rates, which with a slight softening in recent economic reports looks like it may happen later rather than sooner.
Recent strength in employment and housing industry shifting concern from a weakening in the U.S. economy to enough strength to prompt an early bump up in interest rates.
-Greece

Note: Source of economic data

For a weekly economic calendar and good recap of  indicators, go to mam.econoday.com.

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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication

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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk

 

 

 

 

 

 

 

 

 

 

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